Teardown: Apple iPad Mini

With the new 8in iPad Mini, Apple is looking to make Christmas wish lists ahead of a more subsidised set of rival smaller-screen-size tablets.

On one side are the low-cost Amazon Kindle Fire HD and Google Nexus 7. Both of these smaller 7in products are sold at or below cost (allowing for software and pre-loaded apps), with the intention of driving sales via the companies' Web markets.

On the other are tablets such as those in the Samsung Galaxy family, which, in some markets, benefit from cellular carrier subsidies to lower their price points.

"Nevertheless," says Andrew Rassweiler, senior principal analyst, Teardown Services at IHS, "Apple is sticking to the premium-brand strategy it has always used for its media tablet and smartphone products."

Something, though, has had to give. Even with a US retail tag of $329 for the entry-level model, substantially ahead of the $199 charged for the Amazon and Google rivals, the iPad Mini is sold at a tighter margin than its big sister.

The bill of materials per unit for the 16GByte-capacity, WiFi-only Mini is $188 and manufacturing costs are about $10. The total cost of manufacture (excluding software and marketing) is therefore $198.

Apple has, however, sought to mitigate the low-level tightening of its margins in models that offer greater memory.

"Because Apple provides consumers no option to expand the iPad Mini's storage capacity with any sort of removable memory card, the only way users can upgrade the amount of flash available on the product is to buy a higher-end 32GByte or 64GByte model," explains Rassweiler.

"These higher-end models – with or without 4G wireless capabilities – are priced at $100 intervals, $429 and $529. However, the incremental cost of the additional NAND flash memory is only $9.60 for an additional 16GByte and $19.20 for an additional 32GByte.

"This means that compared to the entry-level model, the 32GByte iPad Mini generates about $90 in additional profit for Apple for every unit sold, and the 64GByte model, generates $171 more per unit."

The defining feature of the iPad Mini is its 7.9in display. Not only is this larger than its main rivals, but it also incorporates GF2 multi-touch touchscreen technology. GF2 allows the touchscreen module to be thinner than competing tablets.

But GF2 is a maturing technology so its use makes manufacturing more challenging during initial production by reducing yields. This drives up pricing for the touchscreen module. The initial cost of the display and touchscreen module is preliminarily estimated by IHS at $80, a hefty 43 per cent of the total BOM.

The main display suppliers for the iPad Mini are likely to be LG Display of South Korea and AU Optronics of Taiwan.

The iPad Mini also includes a 4G wireless option at a retail premium of $130 for all three models. Although the Mini in the IHS teardown did not include this option, the teardown team estimates that the addition of the 4G LTE module hardware would cost approximately $34. However, this cost excludes essential intellectual property licensing fees, such as those for CDMA/WCDMA/LTE wireless technology.

Given these pressures – particularly the display cost – Apple has sought to reduce expenses in other sections of the iPad Mini.

"The most notable example of cost cutting is in the processor: Apple's own A5 chip manufactured on a 32nm process technology," says Rassweiler.

"The A5 used in the Mini is a part that has been used in two other Apple products; the latest Apple TV model (with that version using only one of the cores in the A5 32nm) and the latest version of iPad 2. Because of this, the A5 processor costs just' $13, accounting for only 4'per cent of the total BOM. This compares to $16.50 for the Texas Instruments OMAP processor used in Amazon's Kindle Fire HD.

"The use of the A5 is a great example of Apple leveraging a common component in as many devices as possible in order to increase purchasing volumes and keep costs to a minimum."

Interestingly, despite the well-publicised legal battles between Samsung and Apple, Samsung remains the foundry manufacturer of the processor.